Docket: 2008-314(IT)I
BETWEEN:
CLAUDINE LACHAPELLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal
heard on September 8, 2008, at Montréal, Quebec
Before: The Honourable
Justice Lucie Lamarre
Appearances:
|
Agent of the Appellant:
|
Serge Cloutier
|
|
Counsel for the Respondent:
|
Justine Malone
|
____________________________________________________________________
JUDGMENT
The appeals from the assessments made under
the Income Tax Act for the 2003 and 2004 taxation years are dismissed.
Signed at Montréal, Quebec, this 10th day of September
2008.
"Lucie Lamarre"
Translation
certified true
on this 4th day of
November 2008.
Brian McCordick,
Translator
Citation: 2008TCC504
Date: 20080910
Docket: 2008-314(IT)I
BETWEEN:
CLAUDINE LACHAPELLE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1]
The Appellant is
appealing from two assessments made by the Minister of National Revenue
("the Minister") under the Income Tax Act
("the Act") for the 2003 and 2004 taxation years. By those
assessments, the Minister disallowed expenses that the Appellant claimed
against professional income reported in her income tax return; and imposed a
penalty on the Appellant under the terms of subsection 163(2) of the Act.
[2]
Specifically, the
Appellant reported professional income in the amount of $6,000 in both 2003 and
2004, and claimed expenses totalling $6,309.46 in 2003 and $7,105.93 in 2004, thereby
claiming a $309.46 loss against her other income for the 2003 year and a
$1,105.93 loss against her other income for the 2004 year.
[3]
During those years, the
Appellant was actually working full-time for Fiducie Desjardins Inc. as an
administrative assistant, earning income of $43,840.35 in 2003 and $49,066.79 in
2004 from that employment. The professional income which was reported, and
which is in issue here, is related to the trucking business that belongs to her
ex-husband, with whom she still lived in 2003 and 2004. The couple separated in
December 2005 and the Appellant left the couple's home at that time.
[4]
During the audit,
Mourad Djebrouni, of the Canada Revenue Agency (CRA), several times asked the
Appellant, and her accountant Serge Cloutier, who represented her in court, for
explanations regarding the expense claims and supporting documents. According
to Mr. Djebrouni's testimony, the Appellant referred him to Mr. Cloutier,
who initially told him that he would check with his partner, then said
that he would check with the ex-husband, and then did his own research,
ultimately telling Mr. Djebrouni that he was no longer in possession of the
invoices and documents substantiating the expenses.
[5]
The Appellant said that
she did not take those documents with her when she moved in 2005, and that she
later asked her ex-husband for them, only to be told that he did not have them
either. It appears that Mr. Cloutier's office was the subject of a seizure and
that no relevant documents were available anymore.
[6]
Mr. Djebrouni also
testified that he asked the Appellant what the reported professional income was
for. He said she answered that she did secretarial tasks for her husband. She allegedly
paid her husband's business's bills using the couple's joint account, the
business account, her own personal account or a credit card. She also allegedly
ran errands for her husband, who worked nights and was not available during the
daytime to do various small tasks.
[7]
On the day of the
hearing, the Appellant explained that she was not an employee of her
ex-husband's. Mr. Cloutier argued that the Appellant was never remunerated for
the secretarial duties, and that the amounts of roughly $6,000 each year were
to reimburse the Appellant for expenses that she had paid on behalf of her
ex-husband's business. This was the first time that such an explanation was
given. The expense reimbursement theory was not raised during the audit, in the
notice of objection, upon the CRA appeals or in the Notice of Appeal.
[8]
In his oral
submissions, Mr. Cloutier explained that the Appellant had insisted on
reporting the reimbursements of her expenditures. My understanding is that the
ex‑husband claimed the amounts paid to the Appellant as business
expenses, and that she thought that she had to include them in her income tax
returns.
[9]
According to this
explanation, since Mr. Cloutier did not see how he could enter these
reimbursements in the Appellant's income tax returns, he decided, with her
consent, to report professional income equal to the amounts reimbursed, and to
claim, as expenses, the invoices that she had paid. In so doing, Mr. Cloutier
claimed a business loss that he deducted from the Appellant's other income.
[10]
The Appellant testified
that she did not know how Mr. Cloutier had calculated the expenses claimed. For
example, the motor vehicle expenses were deducted by the Appellant against her
income even though she did not use a motor vehicle. She was unable to explain
the other expense claims.
[11]
In my opinion, by
agreeing to sign her income tax returns as they read, the Appellant was
inviting upon herself the assessments that she faces today.
By intentionally declaring professional (secretarial) income and claiming
expenses, she had to be prepared to substantiate her statements. She now argues
that the income consisted of expense reimbursements, and that she was never
remunerated for her services. If so, her ex-husband's business was not a
source of income for her, and she had nothing to report from a tax standpoint.
If she did not get reimbursed by her husband for all the expenses that she
incurred on behalf of his business, it is not up to the tax authorities to pick
up the tab. She should have turned to her ex-husband and claimed her due from
him.
[12]
Merely by stating, in
her tax returns, that she had earned professional income against which she was claiming
expenses greater than the income reported, in the knowledge that this was
not the true situation, the Appellant made false representations. This opened
the door to the Respondent to argue that the Appellant was indifferent, to a
degree amounting to gross negligence, as to whether the Act was being
complied with. Such neglect must be more serious than simply a failure to
exercise reasonable care (see Venne v. Canada (Minister of National Revenue
– M.N.R.), [1984] F.C.J. No. 314 (QL) (T.D.).
[13]
The role of a
professional advisor, specifically a professional accountant, is, among other
things, to tell the clients who ask how to fill out their income tax returns.
It was not up to the Appellant to dictate how her accountant was to go about
this. Rather, the reverse was true. The Appellant and Mr. Cloutier not only
acted carelessly by filling out the income tax returns as they did, they also deliberately
misled the tax authorities, thereby running the risk of a penalty under the
terms of the Act.
[14]
When one provides the
tax authorities with information, one must be prepared to substantiate what has
been reported in an income tax return. Making a false return has its risks. In
the case at bar, I truly do not have enough evidence to accept the Appellant's
theory.
[15]
Not only has the
Appellant failed to convince me that she did not receive remuneration from her
ex-husband and that she actually incurred the expenses in question on his
behalf — indeed, she had no evidence in support of
her assertions to that effect — but,
moreover, the Respondent has convinced me that the penalty imposed under
subsection 163(2) of the Act is warranted.
[16]
The appeals are
dismissed.
Signed at Montréal, Quebec, this 10th day
of September 2008.
"Lucie Lamarre"
Translation
certified true
on this 4th day of
November 2008.
Brian McCordick,
Translator
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